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Insurance may raise questions in divorce

When couples divorce in New Jersey and across the nation, there are always questions of property division and how best to treat both partners fairly. One of the most misunderstood areas of property division and the cause of some combative divorce issues is the disposition of life insurance. Technically, when a judge orders a couple to split all assets, life insurance proceeds or value becomes a part of the judgment, but the reality of splitting an intangible asset may lead to conflict.

Life insurance is usually one of two types: Whole or term. Whole life insurance builds cash value over time, and a whole life policy that has been paid on for many years may have substantial cash value. When a couple splits, the person holding the life insurance policy may have to make a choice between paying the other spouse for half the value of the policy or retiring it and splitting the proceeds.

Term life, however, operates differently. Most term life policies have minimal cash value, so surrendering them is rarely the best option. However, the owner of the policy may want to change the beneficiary after the divorce to another party such as a child or subsequent spouse. In order to treat both partners fairly, judges sometimes estimate the value of the policy and make a judgment to pay the non-owner spouse a sum of money in lieu of the policy itself.

These and other financial issues can create a great deal of stress and conflict in a divorce proceeding. Many divorcing spouses turn for help to a family law attorney who may be able to assist in negotiating a fair and manageable asset split.

Source: Fox Business, "Don't I Get Half of My Ex's Life Insurance Policy?", Jack Hungelmann, May 06, 2013

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